What is a SEP-IRA?:
A SEP-IRA (Simplified Employee Pension) is a retirement plan that is available to self-employed individuals and small businesses. A SEP-IRA is a written plan that allows a self-employed person to contribute towards his/her retirement and to contribute towards employee’s retirements without the complexity of other plans.
A SEP-IRA (Simplified Employee Pension) is a retirement plan that is available to self-employed individuals and small businesses. A SEP-IRA is a written plan that allows a self-employed person to contribute towards his/her retirement and to contribute towards employee’s retirements without the complexity of other plans.
Who is eligible to participate?:
- A self-employed person or employee who has reached age 21
- A self-employed person or employee who has worked for you at least 3 of the last 5 years
- A self-employed person or employee who has received at least $450.00 in compensation for the year
Who is excluded from participation?:
- Employees covered by a union contract with retirement benefits bargained by you with the union
- Some nonresident alien employees (see IRS Publication 519)
What are the contribution limits for self-employed persons?:
- The lesser of 25 percent of your net self-employment earnings or $45,000
What are deduction limits for self-employed persons?:
- The deduction limits for self-employed persons is figured using the IRS Rate Table for Self-Employed or the IRS Rate Worksheet for Self-Employed (see IRS Publication 560)
What are the contribution limits for employees?:
- The lesser of 25 percent of their compensation or $45,000
What are deduction limits for employees?:
- The most you can deduct is the lesser of the contributions for the employee for the year or 25 percent of the employee’s total compensation not to exceed $45,000
What are the advanages of a SEP-IRA?:
- Investment earnings grow tax-deferred until distribution
- Easy to set up and operate
- You are not locked into making contributions every year
- Sole proprietors, partnerships, C and S corporations, and LLCs can set up SEPs
- Administrative costs are low